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This minicourse has been written to provide you with an introduction to the principles involved in sports arbitrage. Log into the TraderZone to purchase your Trader Pack which includes the Hardback Version of Sports Arbitrage - How To Place Riskless Bets and Create Tax-Free Investments by Rajeev Shah
This minicourse has been written to provide you with an introduction to the principles involved in sports arbitrage. Log into the TraderZone to purchase your Trader Pack which includes the Hardback Version of Sports Arbitrage - How To Place Riskless Bets and Create Tax-Free Investments by Rajeev Shah
WHAT IS SPORTS-ARBITRAGE?
Arbitrage is defined by the Compact Oxford English Dictionary as "the simultaneous buying and selling of assets in different markets or in derivative forms, taking advantage of the differing prices."
For example, the Bund futures contract used to trade both in London on LIFFE and also in Germany on the DTB. Although their prices would mostly be the same, there would also be times when they were out of line and this is when arbitrageurs would step in to buy at the lower prices on one exchange and immediately sell at the higher price on the other exchange. More complex arbitrage opportunities occur between interest rate markets and derivative markets where a relationship can be synthesized and then arbitraged if the conditions are correct.
Sports-Arbitrage opportunities appear everyday between the large number of worldwide sports bookmakers in existence and this enables traders to place risk-free bets. The trader sets up his bets in such a way that all outcomes are covered and no matter which bet eventually pays out, the receipts are always greater than the total investment.
Before giving an example, it may be useful to explain how bookmaker's prices (also known as 'odds') work. If you already understand this, please click here to skip past this table.
| The
prices set by bookmakers tell you how much you will win if you place a
winning bet. They come in 3 formats which all look very different but,
in fact, convey exactly the same information i.e how much you will win
if you place a winning bet at that price. The 3 formats are known as : |
||
| UK-Style (these prices look like fractions) |
EU-Style (these prices look like decimals) |
US-Style (these prices look like + or - numbers) |
| Below are examples of how these formats are presented. With each example, exactly the same price is being expressed in each column, only the formats differ | ||
| 1/1 (evens) |
2.00 | +100 |
| A
bet of £100 gives winnings of £100 Remember you also get your original stake back from the bookmaker so the total receipt is £200 |
||
| 2/1 | 3.00 | +200 |
|
A
bet of £100 gives winnings of £200
Remember
you also get your original stake back from the bookmaker so the total
receipt is £300
|
||
| 3/1 | 4.00 | +300 |
|
A
bet of £100 gives winnings of £300
Remember
you also get your original stake back from the bookmaker so the total
receipt is £400
|
||
| 1/2 | 1.50 | -200 |
|
A
bet of £100 gives winnings of £50
Remember you also get your original stake back
from the bookmaker so the total receipt is £150 |
||
| 1/3 | 1.33 | -300 |
|
A
bet of £100 gives winnings of £33
Remember you also get your original stake back
from the bookmaker so the total receipt is £133 |
||
| 1/4 | 1.25 | -400 |
|
A
bet of £100 gives winnings of £25
Remember you also get your original stake back
from the bookmaker so the total receipt is £125 |
||
| At
this stage, it's most important to understand the UK and EU odds. UK odds tell you how much you will win EU odds tell you how much you will win plus the stake (you always get the stake back from the bookmaker if you win, regardless of the style of odds) This is why the conversion from UK style to EU style is simply to add 1 For example (as above) 2/1 is equivalent to 3.00 |
||
An example of an arbitrage trade
A pre-season NFL match between Atlanta & Jacksonville gave us the following market-anomaly between William Hill & Gamebookers:
| ATLANTA | GAMEBOOKERS | 1.85 |
| JACKSONVILLE | WILLIAM HILL | 2.50 |
This arbitrage yields a profit of about 6%:
To win £1000 if Atlanta wins, one has to bet £540.50 at Gamebookers
(£1000 / 1.85 = £540.50) or, alternatively, (£540.50 x 1.85 = £1000)
To win £1000 if Jacksonville wins, one has to bet £400.00 at William Hill
(£1000 / 2.50 = £400.00) or, alternatively, (£400.00 x 2.50 = £1000)
In total, in order to be guaranteed a win of £1000 irrespective of which teams wins,
one has to spend £540.50 + £400 = £940.50
Spending £940.50 to Win £1000 means that
The risk-free profit on this trade is £59.50
Trading opportunities in sports-arbitrage markets are almost endless and always renewing themselves, event after event.
Log into the TraderZone to see just how many of these types of trades appear every single day
There are a number of ways to calculate the stakes and profit of sports-arbitrage trades. The basic formula is given below but do not let it concern you too much: you have access to the built-in arbitrage calculator in ArbSurfer Pro - just press the calculator button on the toolbar
In additon, all trades received via ArbAlarm have the staking plan pre-calculated and displayed to save you time when trading.
The Sports-Arbitrage Formula
Arbitrage trades are expressed as a percentage. This percentage is calculated by dividing 1 by each set of odds and then adding them together.
1 / 1.85 = 54.05%
1 / 2.50 = 40.00%
54.05% + 40.00% = 94.05%
This percentage, 94.05%, is the ratio of your Investment to Winnings.
Once you have converted the price of each bet into a percentage, you then take your intended Win amount and multiply it by each pecentage to find out how much you should bet on each outcome:
£1000 x 54.05% = £540.50 This is the amount you will bet on Atlanta at 1.85 with Gamebookers
£1000 x 40.00% = £400.00 This is the amount you will bet on Jacksonville at 2.50 with William Hill
In other words, if your winnings are £1000, as used in the example above, the two bets add up to £940.50 i.e 94.05% of the winnings. This effectively means that 5.95% of the winnings is profit. You may hear the arb described as a 94.05% arb or a 5.95% arb. These mean the same thing.
The same technique is used no matter how many outcomes there are in a trade. For example, in soccer there will usually be 3 bets to place: Home Win, Away Win and Draw. In these cases, the percentages for the 3 bets are calculated as above and the results will tell you how much to stake on each bet.
Remember, though, during your normal trading activities you will not need to make these calculations manually - your software will do it all automatically for you.
So, now you know what a sports-arbitrage trade is, let's take a look what's required before you can take advantage...
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